by Jack Lee
(UPDATED 6-1-2010) As I predicated stocks opened lower this week and eventually closed down -112.61 -1.11% on the DOW. OIL remains the bargain basement play. PVX coming in range, yield is a solid 9.5%. Consider a buy under $6.70. Stop loss set at $6.10.
This is the DOW chart for the last 3 months and as you can see the NASDAQ almost mirrors it (see below). Friday, shows the S&P 500 down 1.01% and it’s crossing below its 10-day moving average. (Not good) Participation in the sell-off on Friday is broad with declining issues outpacing advancing issues by 2,023 to 935 (New York Stock Exchange) and this does not bode well for next week.
Note, on the first chart that long bull market where the chart takes a nice run up to around April 26 and it does so with minimal volatility. Now compare that steady run to the sudden drop through May 9th and more recent events. The chart is jirrating in wiuld swings not unlike our entry into the housing bubble. That’s pretty spectacular, but what does it mean for the rest of 2010? I’ll try to explain. The 1000 point drop looks like the market fell off a cliff and market analysts will tell you this was in large part due to a technical correction, where the stock market got a little too far out in front of actual earnings. 10% is a huge retracement and “corrections” will always happens when optimism exceeds reality, but a 1000 point drop? No, that isn’t just a technical correction folks; there’s more going on here. The charts are telling us the news in Europe is rattling confidcence here. Global fears have the big guys, those market makers and their billions, running for the sidelines.
Volatility (wild swings) accompanied the precipitous drop in the market and the volatility in the last few days suggests this market is not finished with its shake out. DOW 10,000 was the psychological bottom, but we’ve tested that bottom twice now and if we pierce it with conviction in the next week I would say we better be looking for a lower low to call the bottom and thats not good for a market heading into a slow season.
Consider that we are well into the summer trading session in the US and with summer comes the traditional “summer slump”. Markets here generally just drag along, but international events, namely a weak Euro, the Greece situation and other economic uncertainties that accompany the European common market could make summer more
Update as of Sat., 5/29/2009: MoneyNews: “The decline in stock prices that took the Dow Jones Industrial Average down nearly 7 percent so far in May may continue, says Mohamed El-Erian, CEO of money management titan Pimco.
Investor fears that the European debt crisis will stunt global economic growth could spark a sustained swoon by stocks, he says.
“This is not a typical retracement,” El-Erian said.
“We are in uncharted waters on account of several issues, including what is going on in Europe and other important structural regime changes,” he told Bloomberg.
“In economic terms, European developments are unambiguously bad for global growth.”
European and Asian stocks tumbled too, as many investors concluded Europe will be unable to get its act together.
The rattled investors fled to Treasury bonds as a safe haven, sending the 10-year Treasury yield down to a one-year low of 3.10 percent.
Triple-digit Dow moves became common again during the month as investors grappled with concerns that mounting debt in Europe might upend a global economic recovery, the Associated Press reported. Because of those worries, most of the big moves during the month were drops. The Dow has fallen 6.8 percent in May.” This confirms what I said from article written a day earlier.
than a slump. In the case of the weak Euro we’re reminded that currency fluctuations can have a big impact on international returns. What affects Europe, affects us because we are a global economy, like it or not. So now we’re up to Sept. If the market is trading around 9200 and the Euro is starting to firm up, then we could see investors returning as bargain hunters. But, if Europe is still in chaos, 9200 would be optimistic. We could touch 8500 on the DOW before low PE’s and PS’s start creating bargain hunting again.
About a month ago, I started moving my holdings out of the market and today I am almost 90% to cash. This is probably a prudent place to be (cash) until we see long term signs the market is on the mend and we can’t see that until we see the monetary and economic crisis in Europe under control. It’s far from under control. Caution is therefore advised, which means smart money is moving from go-go stocks to more secure places like gov. bonds or quality muni bonds with a decent yield or better yet, to a money market fund. If you are up to taking a risk I think oil stocks are greatly oversold (bargain basement) and while they may have more downside in the near term, the long-term-buy-and-hold play looks very attractive to me. I see 30%-40% profit potential in about a year if we start trending back up by Sept.
One of my favorite ETF’s is OIL, another based mostly on its secure yield is PVX. They are paying close to 9.5% annual and they pay out dividends monthly which is nice for retirees. If you’re a gambler with too much cash, then why not try BP? They’ve been hammered for sure, but now they pay a great dividend and that gives you staying power until the stock recovers. Their future liability could be mitigated by a bill we passed that limits oil companies spill damages to a mere $75 million.
So, as a LTBH, I think BP will do okay, but they are going to be in litigation for years and that will be expensive! There’s also a question of ethics. It appears this company did cut corners for safety and they haven’t been as forthcoming as they should have been on this recent oil spill in the gulf. So the big question is, do you really want to put your money in a company that has been caught (allegedly) cheating? than a slump. In the case of the weak Euro we’re reminded that currency fluctuations can have a big impact on international returns. What affects Europe, affects us because we are a global economy, like it or not. So now we’re up to Sept. If the market is trading around 9200 and the Euro is starting to firm up, then we could see investors returning as bargain hunters. But, if Europe is still in chaos, 9200 would be optimistic. We could touch 8500 on the DOW before low PE’s and PS’s start creating bargain hunting again.
About a month ago, I started moving my holdings out of the market and today I am almost 90% to cash. This is probably a prudent place to be (cash) until we see long term signs the market is on the mend and we can’t see that until we see the monetary and economic crisis in Europe under control. It’s far from under control. Caution is therefore advised, which means smart money is moving from go-go stocks to more secure places like gov. bonds or quality muni bonds with a decent yield or better yet, to a money market fund. If you are up to taking a risk I think oil stocks are greatly oversold (bargain basement) and while they may have more downside in the near term, the long-term-buy-and-hold play looks very attractive to me. I see 30%-40% profit potential in about a year if we start trending back up by Sept.
One of my favorite ETF’s is OIL, another based mostly on its secure yield is PVX. They are paying close to 9.5% annual and they pay out dividends monthly which is nice for retirees. If you’re a gambler with too much cash, then why not try BP? They’ve been hammered for sure, but now they pay a great dividend and that gives you staying power until the stock recovers. Their future liability could be mitigated by a bill we passed that limits oil companies spill damages to a mere $75 million.
So, as a LTBH, I think BP will do okay, but they are going to be in litigation for years and that will be expensive! There’s also a question of ethics. It appears this company did cut corners for safety and they haven’t been as forthcoming as they should have been on this recent oil spill in the gulf. So the big question is, do you really want to put your money in a company that has been caught (allegedly) cheating?
And this by Daqn Weil: “The government finances of developed countries have deteriorated to the worst condition in more than 100 years, says Citigroup Chief Economist Willem Buiter.
“The public finances in the majority of advanced industrial countries are in a worse state today than at any time since the industrial revolution, except for wartime episodes and their immediate aftermaths,” he wrote in a recent report for clients.
“Most of the richest industrial nations . . . are on unsustainable fiscal-financial trajectories.”
Naturally the fiscal woes will have a negative impact on countries’ economies.
“Restoring fiscal balance will be a drag on growth for years to come,” Buiter said.
The numbers aren’t pretty. Last year the budget deficit totaled 13.6 percent of GDP in Greece, 11.5 percent in the United Kingdom and 11.2 percent in the United States.
“Unsustainable public finances are not just an issue for Greece, the other countries of the southwest euro area, the euro area (as a whole) or the European Union,” Buiter wrote. ”